The Consumer Financial Protection Bureau (CFPB) plans to move forward with an “open banking” and “open finance” rule this week that is expected to boost competition in the financial sector by obligating financial institutions to give consumers their own data.
CFPB Director Rohit Chopra, in an announcement at the Money20/20 conference in Las Vegas, provided a timeline for the bureau to create and release rules that will allow consumers who wish to switch card carriers or banks to transfer their account histories to a new company. That means they won’t have to start from scratch with a new record of their financial history, which may come in handy for taxes, disputes with merchants, or insurers.
“While not explicitly an open banking or open finance rule, the rule will move us closer to it, by obligating financial institutions to share consumer data upon consumer request, empowering people to break up with banks that provide bad service, and unleashing more market competition,” he said.
“If successful, it will also reduce the ability for incumbents to build moats and for middlemen to serve as gatekeepers,” he said. “It will provide big advantages to those who provide the best products, service quality, and rates,” he added.
The CFPB this week will release a discussion guide for small businesses to weigh in on the proposed rule. In the coming months, the bureau will hear from small financial institutions, as well as “fourth-party” data brokers.
A report on the information will be released in the first quarter of 2023, with the proposed rule expected later in 2023, and finalization and implementation planned for 2024.
The rules will require financial institutions offering deposit accounts, credit cards, digital wallets, prepaid cards and other transaction accounts to set up secure data-sharing methods, such as with application programming interfaces. Chopra said he expects the rules to cover more products over time.
“In an open and competitive market, it is easy for individuals to fire, or walk away from, their financial provider for whatever reason,” Chopra said.
Switching bank accounts under the current system is “a huge pain,” he said. “Direct deposits need to be reset, as do scheduled payments linked by [Automated Clearing House] or debit card. And consumers need to take these actions, while managing day-to-day liquidity issues. Our rule will facilitate third-party companies that offer services to make switching recurring payments easier.”
The CFPB was given the authority to create such rules under Section 1033 of the 2010 Dodd-Frank Act. The bureau made clear in May that Section 1033 rulemaking was on its agenda, though Chopra’s announcement Tuesday marked the first time a timeline was made public.
The CFPB’s rulemaking will not “turn on a switch” to an open ecosystem, Chopra said but added he hopes “it will move us in that direction.”